Tag: market volatility

For the third straight week, stocks posted positive returns by the close of last week. Each of the indexes listed here gained at least 2.40%, with the small caps of the Russell 2000 zooming up by almost 5.0%. Energy shares had a strong week as oil prices rallied. Investors were also encouraged by rhetoric from Federal Reserve chairman Jerome Powell, who advised that the economy remained on solid ground and that the Fed would be sensitive to changes in the economy when determining whether to raise interest rates.

Oil prices climbed last week, closing at $51.67 per barrel by late Friday, up from the prior week’s closing price of $48.26 per barrel. The price of gold (COMEX) increased last week, closing at $1,288.50 by last Friday evening, up from the prior week’s price of $1,286.70. The national average retail regular gasoline price was $2.237 per gallon on January 7, 2019, $0.029 lower than the prior week’s price and $0.285 less than a year ago.

Market/Index

2018 Close

Prior Week

As of 1/11

Weekly Change

YTD Change

DJIA

23327.46

23433.16

23995.95

2.40%

2.87%

Nasdaq

6635.28

6738.86

6971.48

3.45%

5.07%

S&P 500

2506.85

2531.94

2596.26

2.54%

3.57%

Russell 2000

1348.56

1380.75

1447.38

4.83%

7.33%

Global Dow

2736.74

2772.41

2847.60

2.71%

4.05%

Fed. Funds target rate

2.25%-2.50%

2.25%-2.50%

2.25%-2.50%

0 bps

0 bps

10-year Treasuries

2.68%

2.66%

2.69%

3 bps

1 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

Consumer prices fell slightly in December, dropping 0.1%, after being unchanged in November. Over the last 12 months ended in December, the index has increased 1.9% — the first time the 12-month change has been under 2.0% since August 2017. Driving the December decrease was a 7.5% decline in the gasoline index. The index less food and energy increased 0.2% in December, the same increase as in October and November. Over the last 12 months, prices excluding food and energy have risen 2.2%.

Though a bit dated, the latest figures from the Job Openings and Labor Turnover Summary revealed that the number of job openings fell to 6.9 million on the last business day of November. There were 7.1 million job openings in October. The number of hires fell from 5.9 million in October to 5.7 million in November. Total separations also fell from 5.6 million in October to 5.5 million in November. Over the 12 months ended in November, hires totaled 68.0 million and separations totaled 65.6 million, yielding a net employment gain of 2.4 million.

According to the December 2018 Non-Manufacturing ISM® Report On Business®, the services sector slowed last month. The non-manufacturing index dropped 3.1 percentage points lower in December from November. Business activity fell 5.3 percentage points, employment receded 2.1 percentage points, and prices plummeted 6.7 percentage points. New orders posted a marginal 0.2 percentage point uptick in December, while exports jumped 2.0 percentage points. Respondents remained concerned about tariffs and available employment resources.

For the week ended January 5, 2019, there were 216,000 new claims for unemployment insurance, a decrease of 17,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 29, 2018. The advance number of those receiving unemployment insurance benefits during the week ended December 29 was 1,722,000, a decrease of 28,000 from the prior week’s level, which was revised up by 10,000.

Eye on the Week Ahead

More reports relating to consumer prices and inflation are on tap for this week. The Federal Reserve’s report on industrial production and capacity utilization for December will be worth examining, particularly following purchasing managers’ indication last week that manufacturing is slowing.

Stocks posted solid gains by the close of the first week of the new year. A favorable jobs report helped push the benchmark indexes listed here higher last Friday, as stocks recovered from an ominous start at the beginning of the week. Helping ease investors’ fears of a slowing economy, Fed Chair Jerome Powell indicated economic data is pointing to a good start to the economy in 2019, but, more importantly, the Federal Reserve is amenable to making adjustments if necessary. The small caps of the Russell 2000 led the way last week, followed by the Nasdaq and the Global Dow. The large caps of the S&P 500 and the Dow also advanced by more than 1.50%.

Oil prices advanced slightly last week, closing at $48.26 per barrel by late Friday, up from the prior week’s closing price of $45.07 per barrel. The price of gold (COMEX) increased last week, closing at $1,286.70 by last Friday evening, up from the prior week’s price of $1,283.10. The national average retail regular gasoline price was $2.266 per gallon on December 31, 2018, $0.055 lower than the prior week’s price and $0.254 less than a year ago.

Market/Index

2018 Close

Prior Week

As of 1/4

Weekly Change

YTD Change

DJIA

23327.46

23062.40

23433.16

1.61%

0.45%

Nasdaq

6635.28

6584.52

6738.86

2.34%

1.56%

S&P 500

2506.85

2485.74

2531.94

1.86%

1.00%

Russell 2000

1348.56

1337.92

1380.75

3.20%

2.39%

Global Dow

2736.74

2718.19

2772.41

1.99%

1.30%

Fed. Funds target rate

2.25%-2.50%

2.25%-2.50%

2.25%-2.50%

0 bps

0 bps

10-year Treasuries

2.68%

2.71%

2.66%

-5 bps

-2 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

Note: Due to the government shutdown, some economic reports are unavailable. If and when information is released, it will be included in the corresponding What I’m Watching This Week report.

There were 312,000 new jobs added in December, but the unemployment rate rose 0.2 percentage point to 3.9%. Job gains occurred in health care, food services and drinking places, construction, manufacturing, and retail trade. The number of unemployed persons increased by 276,000 to 6.3 million. Comparatively, the unemployment rate was 4.1% and the number of unemployed was 6.6 million in December 2017. The labor force participation rate was 63.1%, and the employment-population ratio was 60.6% for the third consecutive month. The average workweek increased by 0.1 hour to 34.5 hours in December. Average hourly earnings rose $0.11 to $27.48. Over the year, average hourly earnings have increased by $0.84, or 3.2%.

Purchasing managers noted a drop-off in confidence among manufacturers in December, with the degree of optimism dipping to the lowest point since October 2016. The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 53.8 in December, down from 55.3 in November. Overall, manufacturers’ optimism and production fell to their lowest respective levels in 15 months. Job creation sputtered to an 18-month low.

The report from the Institute for Supply Management® followed the Markit results. The December PMI® registered 54.1%, a decrease of 5.2 percentage points from the November reading of 59.3%. The New Orders Index registered 51.1%, a decrease of 11 percentage points from the November reading of 62.1%. The Production Index registered 54.3%, 6.3 percentage point decrease compared to the November reading of 60.6%. The Employment Index registered 56.2%, a decrease of 2.2 percentage points from the November reading of 58.4%.

For the week ended December 29, there were 231,000 new claims for unemployment insurance, an increase of 10,000 from the previous week’s level, which was revised up by 5,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 22. The advance number of those receiving unemployment insurance benefits during the week ended December 22 was 1,740,000, an increase of 32,000 from the prior week’s level, which was revised up by 7,000.

Eye on the Week Ahead

Can the market sustain its push upward, or was last week merely the result of investors taking advantage of lower stock prices? If the government shutdown ends, we should see many economic reports come out this week, including the latest releases on international trade, the federal budget deficit, and the Consumer Price Index.

Trade wars, midterm elections, and market volatility highlighted 2018 for investors. In an attempt to reduce the trade deficit, President Trump pushed to rewrite trade agreements with several long-time trade partners of the United States. Trump amended the trade agreement with South Korea, imposed tariffs on steel and aluminum, and renegotiated the North American Free Trade Agreement (now called the United States-Mexico-Canada Agreement). But the trade war with China has been the most compelling and impactful, not only to the countries directly involved but to much of the global economy. Reciprocal tariffs were imposed by each economic giant throughout the year. There was a temporary truce achieved following the Group of 20 summit, but there was no definitive agreement reached.

Elections in November showed how politically divided the nation is. Democrats picked up 40 congressional seats to win control of the House of Representatives for the first time since 2011. On the other hand, Republicans maintained control of the Senate. The end result is a Congress that has become more divided, at least politically. Oh, and the federal government shut down in late December due to a budgetary stalemate between President Trump and Congress, principally over funding for a border wall.

For the year, the stock market reached new highs and gave it all back by the end of December. “Volatility” is the word that best describes the market in 2018. Despite the economy expanding at a rate not seen in many years, favorable corporate earnings reports, strong consumer spending, tepid inflation, and plenty of jobs to be had, stocks floundered. Trade wars continued, the Federal Reserve hiked interest rates, oil prices bottomed out, and long-term bond prices rose. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), which provides a measure of market risk and investors’ sentiments, spiked in February, then was relatively stable through much of the summer. However, by the end of December, the VIX jumped again. Stocks were sold, bought, and sold again in rapid order, causing benchmark indexes to post noteworthy gains and losses on an almost daily basis. As a result, investors rode a roller coaster of stock prices throughout the year.

The year saw some positive highlights as well. The economy expanded at an annual rate exceeding 3.0% for the first time in several years. The unemployment rate hit the lowest mark since 1969. In November, 1.7 million persons were marginally attached to the labor force, an increase of 197,000 from a year earlier. The Federal Reserve, based on the strength of the economy and labor market, raised interest rates four times during the year. Consumer income rose and purchases increased, and inflation exceeded 2.0% midyear, only to fall back below that target by the end of 2018.

Market/Index

2017 Close

As of 9/28

2018 Close

Month Change

Q4 Change

2018 Change

DJIA

24719.22

26458.31

23327.46

-8.66%

-11.83%

-5.63%

Nasdaq

6903.39

8046.35

6635.28

-9.48%

-17.54%

-3.88%

S&P 500

2673.61

2913.98

2506.85

-9.18%

-13.97%

-6.24%

Russell 2000

1535.51

1696.57

1348.56

-12.05%

-20.51%

-12.18%

Global Dow

3085.41

3121.54

2736.74

-6.81%

-12.33%

-11.30%

Fed. Funds

1.25%-1.50%

2.00%-2.25%

2.25%-2.50%

25 bps

25 bps

100 bps

10-year Treasuries

2.41%

3.06%

2.68

-31 bps

-38 bps

27 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Snapshot 2018

The Markets

Equities: The year 2018 may ultimately mark the end of what was nearly a 10-year bull run. At the start of the year, January was a good month; February and March were not. However, as spring approached, growth in equities began to pick up steam, leading to record highs in several of the benchmark indexes during the summer months. But by October, volatility began to increase, as investor concerns about the impact of a trade war between the world’s largest economies was enough to prompt sell-offs, sending stock prices lower. November was a little better, but December proved to be tumultuous. Ultimately, the benchmark indexes listed here could not match their 2017 year-end values. In fact, several of the benchmark indexes suffered their worst annual losses in many years.

Each of the benchmark indexes listed above fell well below their respective 2017 year-end closing values. Compared to 2017, the Russell 2000, which had eclipsed its 2017 closing mark by over 13% in September, ended the year down over 12%. The Global Dow was not far behind, falling more than 11% by the end of December. The large caps of the Dow and S&P 500 ended the year down 5.6% and 6.2%, respectively. The Nasdaq, which led the way for much of the year on the strength of tech stocks, gave all of the gains back, dropping almost 4% below where it started the year.

Bonds: As stock prices soared during the first half of 2018 and interest rates moved incrementally higher, the demand for long-term bonds was marginal. Yields on 10-year Treasuries rose almost 30 basis points in January as bond prices fell. Long-term bond yields continued to climb, reaching 3.0% in July. However, as volatility increased for stocks, the yield on long-term bonds began to fall as demand drove prices higher. Ultimately, the yield on the benchmark 10-year Treasuries closed 2018 at 2.68%, up from the 2017 closing yield of 2.41%.

Oil: Oil prices began 2018 at over $60 per barrel and continued pushing higher through January, reaching almost $70 per barrel in May. Oil prices remained in the $60 range for most of the fall, spiking to almost $76 in early October. But fears of overproduction began pushing oil prices lower in November. Prices continued to fall, hitting a low of nearly $42 per barrel in mid-December. Ultimately, oil prices closed 2018 at $45.81 per barrel — their first annual loss since 2015. As oil prices rose and fell, so did prices at the pump. Retail regular gasoline prices closed the year around $2.321 per gallon on December 24, about $0.151 less than a year ago.

FOMC/interest rates: The Federal Open Market Committee raised interest rates four times during 2018. Each time the target range increased by 25 basis points. The first increase occurred in March, followed by a rate increase in June, an increase in September, and a final bump occurring in December. For the year, the target range has increased 100 basis points, from 1.25%-1.50% to 2.25%-2.50%. Following each rate increase, the Committee expressed the expectation that the labor market would remain strong and the economy would continue to expand while noting that private business investment had slowed. The Committee changed its stance by the end of the year and reduced its forecasts from four rate increases in 2019 to two 25-basis-point rate increases in 2019.

Currencies: The dollar maintained a relatively strong position throughout much of 2018. The Wall Street Journal Dollar Index, which measures the U.S. dollar against the currencies of 16 other countries, closed 2018 at $89.67, up from its 2017 year-end mark of $85.98. Another currency index, the ICE U.S. Dollar Index, which measures the dollar relative to a basket of six foreign currencies, closed 2018 about 4.5% higher — its best annual gain in several years.

Gold: Through the first quarter of 2018, gold hovered around $1,350 a troy ounce. Rising interest rates, favorable stock market returns, and a strong dollar helped to push gold prices lower during the summer months. However, as stock prices faltered, gold prices pushed closer to their early-year values, finally closing 2018 at $1,284.70.

The Economy (through November 2018)

Employment: The U.S. labor market was solid throughout 2018. Employment growth averaged 209,000 new jobs per month in 2018, compared with an average monthly increase of 174,000 new jobs in 2017. The unemployment rate ended the year (as of November 2018) at 3.7% — lower than the 4.1% rate at the close of 2017. Over the year, the unemployment rate and the number of unemployed persons declined by 0.4 percentage point and 641,000, respectively. According to the Bureau of Labor Statistics, there were 6.0 million unemployed persons in November 2018, down from 6.6 million unemployed in November 2017. The labor force participation rate was 62.9% in 2018, up slightly from last year’s rate of 62.7%. The employment to population ratio was 60.6% (slightly better than 60.1% in 2017). In 2018, the average workweek was 34.4 hours (34.5 hours in 2017). Average hourly earnings in 2018 were $27.35, an increase of 3.0%, or $0.80, over $26.55 in 2017.

GDP/budget: Economic growth, as measured by the gross domestic product, expanded throughout the year, increasing at an annual rate of 3.4% in the third quarter of 2018. The first-quarter GDP rose 2.2%, followed by a 4.2% gain in the second quarter. Gross domestic product essentially measures what the economy produces, such as goods and services. On the other hand, gross domestic income measures all income earned from the production of goods and services, such as wages, profits, and taxes. GDI rose 4.3% in the third quarter of 2018, compared to a 1.3% increase in the third quarter of 2017. The average of gross domestic product and gross domestic income, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 3.8% in the third quarter, compared with an average annual increase of 1.9% in 2017. The federal deficit was roughly $779 billion for fiscal year 2018, an increase of $113 billion over the 2017 fiscal year deficit of $666 billion. The government fiscal year runs from October through September.

Inflation/consumer spending: Inflation, as it relates to consumers, had reached the Federal Reserve’s stated target rate of 2.0%, only to fall below that level in November. The personal consumption expenditures (PCE) price index, the measure of the increase in the prices of goods and services purchased by consumers, was 1.8% higher in November 2018 compared to November 2017. Core PCE, which excludes the volatile food and energy components, expanded at an annual rate of 1.9% in 2018. Personal (pre-tax) income increased 4.1% in the third quarter of 2018 compared to an annual rate of 4.4% in 2017. After-tax income (disposable personal income) increased 4.0% in the third quarter of 2018 after expanding at an annual rate of 4.4% in 2017. Another measure of inflation, the Consumer Price Index, measures the price level of a basket of consumer goods and services purchased by individuals. Over the 12 months ended November 2018, the CPI rose 2.2% (2.1% in 2017).

Housing: A lack of inventory, coupled with rising mortgage interest rates, contributed to a rather lackluster performance in the housing sector. Through November, existing home sales are down 7.0% from a year ago. The November annual sales rate of 5.32 million was notably lower than the 5.72 million rate for November 2017. The median existing-home price for all housing types in November was $257,700, up 4.2% from November 2017 ($247,200). November’s price increase marks the 81st consecutive month of year-over-year gains. Total inventory of existing homes for sale in November was 1.74 million — 4.2% greater than last November (1.67 million).

Manufacturing: Manufacturing and industrial production performed better in 2018 than the prior year. The Federal Reserve’s index of industrial production revealed that total industrial production rose 3.9% over the 12 months ended in November 2018. Over the same period, the output of consumer goods increased 1.5% and production of business equipment expanded 4.1%. Capacity utilization for manufacturing increased 2.0% over the past year. New orders for manufactured durable goods (expected to last at least three years) increased by 8.4% from 2017. Shipments were up 7.2%. Capital goods — tangible assets used by manufacturers to produce consumer goods — also expanded in 2018. New orders for capital goods increased by 8.5%, and shipments of capital goods expanded by 7.3%.

Imports and exports: From January through October, the international trade deficit for goods and services was $503 billion, or 11.5% greater than the deficit over the same period in 2017. The goods deficit totaled $729 billion, while services had a surplus of $226 billion. Exports increased from $1.944 billion in 2017 to $2.093 billion. Imports increased from $2.400 billion to $2.600 billion. Import prices increased 0.7% over the past 12 months ended in November. Export prices expanded by 1.8% over the 12 months ended November 2018.

International markets: International equities did not enjoy the same upward momentum in 2018 compared to the prior year. Economic expansion stalled for many international economies as heightened trade tensions between the United States and several of its trade partners and tighter monetary policies cast a shadow over economic expansion. Following demands for more favorable trade terms, the United States imposed tariffs on imports from several of its trade partners. While negotiations ultimately resolved trade wars with some countries, notably Mexico and Canada, a major impasse still exists between the United States and China. The impact on both countries has been palpable, particularly in China, where fixed-asset investment, retail sales, and industrial output have each decreased in 2018 compared to 2017. In Europe, Great Britain is scheduled to leave the European Union soon, yet it remains unclear under what terms Brexit will take place. Also, several countries tightened their respective monetary policies in 2018 on the heels of economic growth in 2017. The lower interest rates in 2017 that helped propel consumer spending and business investment began to rise in 2018, hindering equity and economic expansion.

Eye on the Year Ahead

The economy grew at a respectable rate in 2018. Will it continue along the same path in 2019? Fears of an economic slowdown lingered at the end of last year and may be realized in 2019. The housing market hasn’t picked up the pace and is generally lagging behind other economic mainstreams. Also, with inflation inching ahead, economic stimulus may be easing, which could lead to tighter financial conditions moving ahead. Certainly, if the global trade wars between the United States and China continue, not only will the impact be felt domestically, but a rift between the world’s two largest economies is sure to affect global economies and markets as well. And, as 2018 closes and 2019 begins, the federal government remains shut down.

The tech-heavy Nasdaq had been the only benchmark index to have exceeded its 2017 closing value. That is no longer the case, as an 8.36% drop last week put the Nasdaq more than 8.0% below its value at the end of last year and firmly in bear market territory. Investors saw the potential of a federal government shutdown and an implied warning from the Federal Reserve that the economy may be slowing as reason to seek shelter from stocks. Besides the Nasdaq, each of the other benchmark indexes listed here suffered large weekly losses, led by the small caps of the Russell 2000, followed by the large caps of the S&P 500 and the Dow. The Global Dow fell “only” 4.86% and is over 13% below its 2017 year-end value.

Oil prices plummeted last week, closing at $45.42 per barrel by late Friday, down from the prior week’s closing price of $51.16 per barrel. The price of gold (COMEX) increased last week, closing at $1,259.10 by last Friday evening, up from the prior week’s price of $1,242.20. The national average retail regular gasoline price was $2.369 per gallon on December 17, 2018, $0.052 lower than the prior week’s price and $0.081 less than a year ago.

Market/Index

2017 Close

Prior Week

As of 12/28

Weekly Change

YTD Change

DJIA

24719.22

22445.37

-6.87%

-9.20%

Nasdaq

6903.39

6332.99

-8.36%

-8.26%

S&P 500

2673.61

2416.62

-7.05%

-9.61%

Russell 2000

1535.51

1292.09

-8.42%

-15.85%

Global Dow

3085.41

2676.76

-4.86%

-13.24%

Fed. Funds target rate

1.25%-1.50%

2.25%-2.50%

2.25%-2.50%

25 bps

100 bps

10-year Treasuries

2.41%

2.78%

2.78%

-11 bps

37 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

Due to the government shutdown, economic reports, such as the latest reports on international trade in goods and new home sales are unavailable as of the release of this report. If and when that information comes available it will be included in the corresponding Market Week report.

For the week ended December 22, there were 216,000 new claims for unemployment insurance, a decrease of 1,000 from the previous week’s level, which was revised up by 3,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 15. The advance number of those receiving unemployment insurance benefits during the week ended December 15 was 1,701,000, a decrease of 4,000 from the prior week’s level, which was revised up 17,000.

Eye on the Week Ahead

Hopefully, the first week of the new year will bring some encouragement to investors who have seen stocks drop precipitously over the past several weeks. On the economic front, the employment figures for December are out at the end of the week. New hirings have dipped some over the last few months, although wages have increased overall.

The tech-heavy Nasdaq had been the only benchmark index to have exceeded its 2017 closing value. That is no longer the case, as an 8.36% drop last week put the Nasdaq more than 8.0% below its value at the end of last year and firmly in bear market territory. Investors saw the potential of a federal government shutdown and an implied warning from the Federal Reserve that the economy may be slowing as reason to seek shelter from stocks. Besides the Nasdaq, each of the other benchmark indexes listed here suffered large weekly losses, led by the small caps of the Russell 2000, followed by the large caps of the S&P 500 and the Dow. The Global Dow fell “only” 4.86% and is over 13% below its 2017 year-end value.

Oil prices plummeted last week, closing at $45.42 per barrel by late Friday, down from the prior week’s closing price of $51.16 per barrel. The price of gold (COMEX) increased last week, closing at $1,259.10 by last Friday evening, up from the prior week’s price of $1,242.20. The national average retail regular gasoline price was $2.369 per gallon on December 17, 2018, $0.052 lower than the prior week’s price and $0.081 less than a year ago.

Market/Index

2017 Close

Prior Week

As of 12/21

Weekly Change

YTD Change

DJIA

24719.22

24100.51

22445.37

-6.87%

-9.20%

Nasdaq

6903.39

6910.66

6332.99

-8.36%

-8.26%

S&P 500

2673.61

2599.95

2416.62

-7.05%

-9.61%

Russell 2000

1535.51

1410.81

1292.09

-8.42%

-15.85%

Global Dow

3085.41

2813.48

2676.76

-4.86%

-13.24%

Fed. Funds target rate

1.25%-1.50%

2.00%-2.25%

2.25%-2.50%

25 bps

100 bps

10-year Treasuries

2.41%

2.89%

2.78%

-11 bps

37 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

The final estimate for the third-quarter gross domestic product showed the economy grew at an annual rate of 3.4%. This estimate is 0.1 percentage point below the second estimate, as personal consumption expenditures and exports were revised down and private inventory investment was revised up. The GDP increased 4.2% in the second quarter. Gross domestic income (the sum of all income earned and costs incurred while producing goods and services) increased 4.3% in the third quarter, compared with an increase of only 0.9% in the second quarter. Growth in consumer spending, which accounts for about two-thirds of the total economic output, grew at a rate of 3.5% in the latest estimate, down from the prior estimate of 3.6%. Also of note, exports, which add to the GDP, fell 4.9% in this estimate, compared to a decline of 4.4% in the prior estimate. Imports, which subtract from the GDP, rose 9.3%.

Citing strength in the labor market and rising economic activity, the Federal Reserve raised the target range for the federal funds rate 25 basis points to 2.25%-2.50%. This is the highest range since the spring of 2008. The Fed also modified its projection for future rate adjustments, now calling for two rate hikes in 2019, down from three such hikes as previously contemplated.

Consumer spending increased 0.4% in November following an 0.8% rise in October. Both pre-tax and after-tax personal income rose 0.2% in November after increasing 0.5% the prior month. Prices for consumer goods and services advanced a marginal 0.1% in November and are up 1.8% from November 2017 — below the Fed’s 2.0% inflation target rate.

New orders for manufactured durable goods increased 0.8% in November following a 4.3% advance in October. Transportation equipment, up three of the last four months, drove the increase, jumping up 2.9%. Excluding transportation, new orders decreased 0.3% for November.

In a sign that the housing market finally may be picking up steam, November saw a 5.0% increase in building permits over October’s total. Housing starts (3.2%) and housing completions (0.4%) also improved last month over October.

Sales of existing homes increased for the second month in a row after expanding by 1.9% in November over the prior month’s mark. Existing home sales are still off by 7.0% from a year ago. The median existing-home price in November was $257,700, up 4.2% from November 2017 ($247,200). The median existing-home price in October was $255,400. However, total inventory decreased to 1.74 million, down from 1.85 million existing homes available for sale in October. Unsold inventory is at a 3.9-month supply at the current sales pace, down from 4.3 last month and up from 3.5 months a year ago.

For the week ended December 15, there were 214,000 new claims for unemployment insurance, an increase of 8,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 8. The advance number of those receiving unemployment insurance benefits during the week ended December 8 was 1,688,000, an increase of 27,000 from the prior week’s level.

Eye on the Week Ahead

The Christmas holiday week is a slow one for economic reports. The November report on the goods trade deficit is expected to show an expansion of the difference between the value of imports and exports. Also, the November figures on new home sales are out this week. No significant change is expected in what has been a mundane housing market for much of the year.

A market correction refers to a decline in a stock or index of at least 10% following a temporary high price. After last week’s losses, the Dow, S&P 500, and Nasdaq are entering correction territory. Of the benchmark indexes listed here, only the Nasdaq remains ahead of its 2017 closing price. The Russell 2000, which had pushed year-to-date gains of over 10%, now wallows more than 8.0% below last year’s ending value. It appears last week’s sell-off was fueled by increased investor fears of a global economic slowdown resulting from unfavorable reports on Chinese and eurozone economic indicators.

Oil prices closed down last week following two consecutive weeks of increasing prices. Oil prices closed at about $51.16 per barrel by late Friday, down from the prior week’s closing price of $52.21 per barrel. The price of gold (COMEX) also fell off after several weeks of gains, dropping to $1,242.20 by last Friday evening, down from the prior week’s price of $1,253.70. The national average retail regular gasoline price was $2.421 per gallon on December 10, 2018, $0.030 lower than the prior week’s price and $0.064 lower than a year ago.

Market/Index

2017 Close

Prior Week

As of 12/14

Weekly Change

YTD Change

DJIA

24719.22

24388.95

24100.51

-1.18%

-2.50%

Nasdaq

6903.39

6969.25

6910.66

-0.84%

0.11%

S&P 500

2673.61

2633.08

2599.95

-1.26%

-2.76%

Russell 2000

1535.51

1448.09

1410.81

-2.57%

-8.12%

Global Dow

3085.41

2835.95

2813.48

-0.79%

-8.81%

Fed. Funds target rate

1.25%-1.50%

2.00%-2.25%

2.00%-2.25%

0 bps

75 bps

10-year Treasuries

2.41%

2.85%

2.89%

4 bps

48 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

The federal government deficit expanded by over $100 billion in November over the prior month. Year-to-date, the deficit sits at $305.4 billion ($201.8 billion last year). In November, the government spent $411 billion, with most of the expenditures going to Social Security ($84 billion), Medicare ($77 billion), and national defense ($62 billion). Receipts last month totaled $206 billion, consisting mostly of individual income taxes ($93 billion) and social insurance and retirement ($93 billion).

Inflation was rather benign in November for consumers. The Consumer Price Index was unchanged in November after rising 0.3% in October. Over the 12 months ended in November, the CPI has increased 2.2%. Energy prices fell 2.2%, pulled down by a 4.2% drop in gasoline prices. The CPI less food and energy inched up 0.2% in November and is up 2.2% over the last 12 months.

Inflationary pressures at the producer level receded in November. The Producer Price Index edged up 0.1% in November following increases of 0.6% in October and 0.2% in September. Of note, a 0.3% jump in producer services drove the modest November price increase. Producer prices for goods actually decreased 0.4% for the month. Another sign that inflation is easing is evident in the 12-month rate, which was 3.4% in July and now sits at 2.5% for the 12 months ended in November. The index less foods, energy, and trade services moved up 0.3% in November, the third consecutive increase. For the 12 months ended in November, prices less foods, energy, and trade services advanced 2.8%.

Retail sales increased 0.2% in November from October, and are up 4.2% over November 2017. Notable sales increases occurred in furniture and home furnishing stores, electronics and appliance stores, and web-based retailers. Gasoline stations saw sales drop by 2.3% in November due to falling gas prices.

Import prices fell 1.6% in November following a 0.5% rise the previous month. The November decrease is the largest monthly decline since a 1.8% drop in August 2015. An 11.0% decrease in fuel prices contributed to the drop-off in import prices. Over the 12 months ended in November, import prices are up 0.7% — the smallest such increase since the index increased 0.2% from November 2015 to November 2016. Export prices fell 0.9% in November after advancing 0.5% in October — the largest one-month drop since January 2016. While agricultural export prices rose 1.8% for the month, nonagricultural export prices, particularly industrial supplies and materials, fell 1.0%. Over the past 12 months, export prices have increased 1.8%.

According to the Federal Reserve, industrial production rose 0.6% in November after moving down 0.2% in October; the index for October was previously reported to have edged up 0.1%. In November, manufacturing production was unchanged, the output of mining increased 1.7%, and the index for utilities gained 3.3%. Total industrial production was 3.9% higher in November than it was a year earlier.

According to the Job Openings and Labor Turnover report for October, the number of job openings ticked up by about 119,000, hires edged up by 196,000, and total separations fell by 85,000. Job openings increased in information (45,000), real estate and rental and leasing (38,000), educational services (20,000), and state and local government education (17,000). The number of job openings decreased in state and local government, excluding education (38,000) and transportation, warehousing, and utilities (33,000).

For the week ended December 8, the advance figure for seasonally adjusted initial claims for unemployment insurance was 206,000, a decrease of 27,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims inched up 0.1 percentage point to 1.2% for the week ended December 1. The advance number of those receiving unemployment insurance benefits during the week ended December 1 was 1,661,000, an increase of 25,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

While the latest report on the gross domestic product is out this week, most eyes will be focused on the announcement from the Federal Open Market Committee’s December meeting. While many expect a quarter-of-a-point rate hike, recent market volatility may sway some committee members to hold off on pushing interest rates higher.

Losses in technology and health-care stocks accounted for much of last week’s market drop. The tech-heavy Nasdaq and the small caps of the Russell 2000 suffered the largest declines, leading a week of high market volatility. Bank and industrial stocks also took a big hit last week. Oil prices rose on news that OPEC members agreed to cut back production next year. Uncertainty over the economy and a prolonged trade dispute between the United States and China seem to be prompting investors to capture any stock gains and invest in bonds and futures such as gold. The yield on 10-year Treasuries continued to drop as bond prices climbed with increased demand.

Oil prices closed up for the second week in a row, ending last week at about $52.21 per barrel by late Friday, up from the prior week’s closing price of $50.72 per barrel. The price of gold (COMEX) gained for the fourth week in a row, climbing to $1,253.70 by Friday evening, up from the prior week’s price of $1,227.80. The national average retail regular gasoline price was $2.451 per gallon on December 3, 2018, $0.088 lower than the prior week’s price and $0.049 lower than a year ago.

Market/Index

2017 Close

Prior Week

As of 12/7

Weekly Change

YTD Change

DJIA

24719.22

25538.46

24388.95

-4.50%

-1.34%

Nasdaq

6903.39

7330.54

6969.25

-4.93%

0.95%

S&P 500

2673.61

2760.17

2633.08

-4.60%

-1.52%

Russell 2000

1535.51

1533.27

1448.09

-5.56%

-5.69%

Global Dow

3085.41

2936.77

2835.95

-3.43%

-8.09%

Fed. Funds target rate

1.25%-1.50%

2.00%-2.25%

2.00%-2.25%

0 bps

75 bps

10-year Treasuries

2.41%

2.99%

2.85%

-14 bps

44 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

Job growth slowed in November, according to the latest report from the Bureau of Labor Statistics. Employment increased by 155,000 new jobs last month, compared with an average monthly gain of 209,000 over the prior 12 months. The unemployment rate remained unchanged at 3.7% for the third month in a row. In November, job gains occurred in health care, in manufacturing, and in transportation and warehousing. Over the year, the unemployment rate and the number of unemployed persons declined by 0.4 percentage point and 641,000, respectively. Both the labor force participation rate, at 62.9%, and the employment-population ratio, at 60.6%, were unchanged in November. The average workweek decreased by 0.1 hour to 34.4 hours in November. Average hourly earnings rose by $0.06 to $27.35. Over the year, average hourly earnings have increased by $0.81, or 3.1%.

The international trade deficit expanded by $0.9 billion in October, growing to $55.5 billion. October exports were $211.0 billion, $0.3 billion less than September exports. October imports were $266.5 billion, $0.6 billion more than September imports. Year-to-date, the goods, and services deficit increased $51.3 billion, or 11.4%, from the same period in 2017. Exports increased $149.3 billion, or 7.7%. Imports increased $200.6 billion, or 8.4%. The deficit with China grew by almost $3 billion in October over September, and sits at $420.8 billion year-to-date — 23% greater than this time last year.

The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ for November posted its lowest figure in three months, indicating growth in the manufacturing sector, but at a slower pace than October. More encouraging from this report was the notable growth in new orders, export orders, and employment.

The November purchasing managers index (PMI®) from the Institute for Supply Management® not only showed growth in the manufacturing sector, but at a higher rate than October. Survey respondents also reported increases in new orders, production, employment, and inventories. Prices and deliveries fell in November from the prior month. While the surveys from Markit and ISM® may differ in some aspects, both reports clearly show that demand remains strong in manufacturing, which is a good sign for the economy.

According to the Non-Manufacturing ISM® Report On Business®, the services sector expanded in November over October. Business activity, new orders, and prices also grew in October. Only employment decreased slightly from September’s survey results.

For the week ended December 1, the advance figure for seasonally adjusted initial claims for unemployment insurance was 231,000, a decrease of 4,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims dipped to 1.1% for the week ended November 24. The advance number of those receiving unemployment insurance benefits during the week ended November 24 was 1,631,000, a decrease of 74,000 from the prior week’s level, which was revised down by 5,000.

Eye on the Week Ahead

Several reports that serve as indicators of inflationary trends are out this week, including the Consumer Price Index, the Producer Price Index, and the report on import and export prices. Inflation has been inching up slowly, and these indicators aren’t expected to change that trend for this past November.